Phisure is a large pharmaceutical company that spent ten years and $2 billion de
ID: 1119596 • Letter: P
Question
Phisure is a large pharmaceutical company that spent ten years and $2 billion developing a drug which cures three types of cancer. The drug is patented, which enables Phisure to operate as a monopoly. Use the graph below to answer the following questions. Unwilling to see pharmaceutical companies profit at the expense of cancer patients, the government decides to regulate the monopoly and sets the price to $0.90 per dose. How much of the new drug will Phisure choose to produce? Price and Cost (S) 10 Number million doses 7 The government then decides to raise the regulated price to $1.00 and to mandate that Phisure produce the same quantity a competitive industry would. If needed, the government will provide a subsidy which allows the company to break even rather than produce at a loss. How big will the total subsidy be? ATC Number MO AVC $million 0 20 40 60 80 100 120 140 160 180 200 Output (millions of doses) Exit- Hint Previous "Check Answer Next about us careers privacy policy tennExplanation / Answer
1. Since the value 0.90 is very close to one, from the graph it is safe to assume the quantity will be 90 million.
2. In case of competitive industry since our eqm is when MC meets the DD curve ie MC equals the AR curve .So, the eqm output will be 180 units.
Revenue will be 180*1 million= 180 million
breakeven point is when ATC cuts the DD curve at point 150,2.5
Breakeven amount = 150 *2.5 = 375 million
So, govt should give a subsidy of 375-180 = 195 million